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Economists: Texas economy strong, getting stronger (AP)

By Chris Tomlinson

AUSTIN, Texas (AP) -- The $1.3 trillion Texas economy has completely recovered from the Great Recession and is getting stronger, official and independent economists told state lawmakers Thursday.

Texas and New York are the only two states to have restored all of the jobs lost when the recession hit in 2007, said John Heleman, chief revenue estimator in the Texas comptroller's office. The Texas economy is now larger than those in Michigan, North Carolina and Georgia combined, he added.

"The Texas economy is on the same trajectory that we've been on as we've recovered from recession and entered into a phase of expansion," he told the House Business and Industry Committee. "We've recovered much more robustly and have moved on. Other states are still trying to recover."

Oil and gas production has doubled over the last six years and the state's rainy day fund will have $8 billion at the end of the 2014-2015 budget year, even if voters in November approve using $4 billion of that fund for roads and highways, Heleman said.

Increased housing starts and automobile sales also have helped spur the recovery, he added.

Texas unemployment is down to 5.7 percent, about a point lower than the national average, and the state's average home price has broken $200,000 for the first time ever. Consumer confidence in Texas is above average, while it remains low in California, Ohio and other Midwestern states, Heleman said.

Independent economist Ray Perryman said Texas lost 400,000 jobs between 2007 and 2011, but has since added more than a million. But he noted that those who lost their jobs may not have gotten one of the new ones.

He said the current oil and gas boom is fundamentally different from one in the late 1970s because it is driven by increased demand and production, not just higher prices. But Perryman warned that Texas needs to make major investments in roads and better schools that produce more graduates among the state's fast-growing Hispanic community.

"In 15 years, if all the graduation rates stay the same by ethnic group ... Texas will have $1.3 billion less in revenue and $750 million more a year in costs for social services," he said. "If we can address those issues, we'll have a promising future."

James LeBas, economist for the Texas Oil and Gas Association, said the industry directly employed 416,000 employees in 2013 and they averaged $120,000 a year in wages. He said producers paid $11.5 billion in royalties to 570,000 families, or about $20,000 per household.

He said higher demand with new technologies such as directional drilling and hydraulic fracturing could lead Texas to break its 1981 record for oil and gas production in 2014. But he said wells that have been hydraulically fractured usually produce 90 percent of their reserves in the first four years.

"The drilling cycle has to continue at the current pace just to maintain that plateau," he said.

Texas does not have an income tax, so revenues from oil and gas production play a major role in the state's income. Environmentalists and homeowner groups complain that regulators need to take a closer look at the process, which some say can pollute water tables and cause localized earthquakes.

Fractured wells also receive tax discounts because they are more expensive to drill. As the process becomes standard, some Democratic lawmakers want to revoke those tax breaks to make up for cuts in public school spending in recent years.

Heleman said rising home prices and new construction will boost funds for schools through local property taxes.